This morning, the U.S. Department of Commerce released its latest data on durable goods orders, and along with a lower-than-expected revision to second-quarter GDP, the report was another indication that the U.S. economy still is moving forward at a very pedestrian pace. Specifically, the report said that new orders for manufactured durable goods decreased $30.1 billion (or 13.2%), to $198.5 billion, in August. The decline, which comes on the heels of three consecutive monthly increases, marked the largest decrease since January, 2009.
More significant, when broken down into components, the latest durable goods orders data paint an even more disconcerting picture of the U.S. manufacturing sector. Excluding transportation, new orders decreased 1.6% and when backing out defense orders, new orders fell an eye-catching 12.4%. But perhaps the most discouraging aspect of the August new durable orders result was a 24.3% drop in so-called core capital goods, which includes such items as computers and machinery, to $57.7 billion. Economic pundits closely monitor the core capital goods rate as it is viewed as a good way of gauging business investment.
In addition to the manufactured durable goods orders, the latest Commerce Department report contained some other noteworthy figures. Indeed, the inventories of manufactured durable goods for August increased $2.2 billion (or 0.6%), to $371.6 billion. The latest figure was highest tally on record and followed a 0.8% rise in July. The buildup of inventories may be an indication that businesses are deferring spending on capital goods. Fears that Congress could fail to avert a “fiscal cliff” of some $500 billion, or more, in expiring tax cuts and government spending reductions may be giving U.S. businesses little incentive to boost production.
In conclusion, the latest figures on manufactured durable goods orders are a very discouraging snapshot of the U.S. economy. A pullback in manufacturing should not be taken lightly, as manufacturing had been the main driver of the recovery from the 2007-2009 recession. Without a boost from this all-important sector, the U.S. economy may continue to advance at a sluggish rate, one that the latest report of second-quarter GDP growth of 1.3% would seem to indicate.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.